Warner Bros Discovery

Ticker
$WBD
Industry
Media
Type
Spin-off
Rating
Covered
Category
General
Target Price
$18.00
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Capitalization (2Q22) β€” There are 2.43bn shares outstanding at $13/share = $31.6bn market cap. Net debt is $49.1bn for an EV of $80.7bn.

Notes

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In 2022 β€” AT&T spun/merged the Warner business with Discovery
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Pre-merger financial projections β€” ~$10.4bn 2023 pre-synergy EBITDA estimated by managements
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Discovery management team
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Warner management team
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Streaming plans β€” management is targeting breakeven by 2024 and $1bn EBITDA by 2025
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2022-2023 guidance β€” reset the bar lower in 2Q22
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Resources

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August 2022 β€” Reset the bar, lower guidance

This was the first full quarter results for combined Warner + Discovery. Pro-forma, revenue was down 3% and EBITDA was down 32% (not good). DTC (streaming) segment was up only 2% on a pro-forma basis while competitor Paramount grew its Q2 DTC business by 56%!

Net debt is a little over $49bn. With shares at $13, this is a ~$32bn market cap and $81bn EV.

If the $12bn 2023 EBITDA guidance holds, the stock is trading at 6.8x EBITDA with 4.1x (forward) leverage. FCF would be $4-6bn next year at 33-50% conversion, good for a 13-19% FCF yield. This means management has backed off the $14bn and 60% conversion guide from the deal announcement.

Most important here, capital allocation is going to be severely hamstrung until the debt levels come down.

Before merging with Warner, Discovery was historically trading around 7.5x EBITDA. At $12bn in FY23 EBITDA and $4bn debt paydown by yearend 2023, a 7.5x multiple = $18 price target.

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January 2022 β€” Highlights from BofA note
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November 2019 β€” VIC write-up: long $DISCA at $27